Fiat currency into a Kondratieff Winter
June 15, 2012 - Nikolai Kondratiev (1892-1938) was a Russian economist who theorized that capitalist economies are subject to a 54-year repeating cycle, though I have seen his work interpreted to fit economic periods lasting anywhere from 40 to 60 years. Each "Kondratieff wave" is divided into four periods that are given the name of the four seasons. A wave of economic boom begins with and ends in a financial bust lasting several years. This period of poor economic conditions is called the Kondratieff winter.
A Kondratieff Winter is marked by depression and deflation, like occurred during the Great Depression of the 1930s. Followers of this theory contend that gene rally the world is presently in another Kondratieff Winter.
I am not a proponent of the Kondratieff theory because I do not believe that events are preordained, or that they fit precise cycles. Nevertheless, I am an adherent of Austrian Economics, and Malthus recognize that economic booms that are artificially induced by cheap credit Thurs occur, and that these boom bust in result of inevitable. So in that sense, if one wishes to call the world's present circumstances a Kondratieff winter, I would agree.
Like the 1930s, we are in a period of depression, and if you use the correct money to measure prices, there is deflation. Today's deflation is though gene rally not recognized because people only look at prices using national currencies, and not gold.
The dollar price of assets like houses, deflation crude oil and the stock market is falling, but that is not. That is simply to overvalued asset being marked down in price to a more realistic level. Asset prices falling during a bust because the excessive credit extended during the boom is wrung out of the system process Describes This wealth destruction, Which is not the same thing as deflation. Deflation, and for that matter, inflation are monetary events.
House, crude oil and stock prices are falling even while the currency being used to measure these prices is inflating. The dollar is inflating even by the U.S. government's own CPI, Which many - including me - contend actually understates the true rate of inflation. This means that inflation is the dollar losing purchasing power. In contrast, in the 1930s the purchasing power of the dollar rose, Which is what happens in a deflation. Its purchasing power rose back then because the dollar was tied to gold, first at $ 20.67 per ounce, and after Roosevelt devalued the dollar, at $ 35 per ounce.
Today the dollar is fiat currency. It is no longer backed by gold or tied to gold at a fixed rate of exchange, but instead is informally linked to gold by a floating rate of exchange, normally called the gold "price". Even though gold as currency Circulates rarely these days, gold is money. Consequently, gold is useful in economic calculation, ie, measuring prices to Determine whether there is inflation or deflation.
For example, consider the price of a popular commodity examined as tea, Which rose 49.6% from $ 2.28 per kilogram in January 2000, near the peak of the economic boom, to $ 3.41 last month. When measuring in terms of grams gold, the price of tea fell over this period from 0.251gg per kilogram to only 0.066gg. To put it another way, 3.8-times more 0.251gg bought tea last month than it did in 2000. That huge increase in the purchasing power of gold is deflation, just like occurred in the 1930s. A similar price comparison for dozens of other goods and services would yield the same result. The prices of goods and services when measured using gold are falling, or in other words, the purchasing power of gold money is increasing because of deflation.
Unfortunately, nearly everyone today Calculates prices only in terms of dollars or their national currency. As a consequence, they say "the price of gold is rising." What they need to realize though is that the purchasing power of gold is rising. In a deflation, money buys more, and that is what gold is doing, though this way of viewing and purchasing power is generated prices rally ignored. Gold in contrast to the 1930s, in today's world of fiat currencies deflation is only apparent when measuring prices with.
Given the prevailing poor economic conditions and gold deflation, we are in what might be called a Kondratieff winter, but to be more accurate, I prefer to call our present circumstances a "fiat currency bubble". It has been ballooning for 40 years, during Which time people lost sight of gold's essential nature and put undue reliance upon currency backed by nothing.
Given that all bubbles are unsustainable, this bubble will pop too. When it does, the preponderance of people who now ignore gold or dismiss out of hand its monetary attributes will once again come to understand that these attributes and characteristics that made gold to be accepted as money for 5.000 years have not disappeared, been destroyed or become less useful. They remain, but sadly, have been ignored or forgotten, Allowing the Fiat Currency Bubble to emerge.
When the bubble finally pops fiat currency, the gold price will soar and fiat currencies will collapse, just like all fiat currencies throughout monetary history have done. At that time I expect gold will return to its rightful and traditional role as international money at the center of global commerce. Therefore my recommendation is to continue accumulating physical gold, and if so inclined, silver too, in order to protect your wealth in preparation for this watershed event. Even though gold's purchasing power has been rising for more than a decade, its appreciation has much further to go.
June 15, 2012 - Nikolai Kondratiev (1892-1938) was a Russian economist who theorized that capitalist economies are subject to a 54-year repeating cycle, though I have seen his work interpreted to fit economic periods lasting anywhere from 40 to 60 years. Each "Kondratieff wave" is divided into four periods that are given the name of the four seasons. A wave of economic boom begins with and ends in a financial bust lasting several years. This period of poor economic conditions is called the Kondratieff winter.
A Kondratieff Winter is marked by depression and deflation, like occurred during the Great Depression of the 1930s. Followers of this theory contend that gene rally the world is presently in another Kondratieff Winter.
I am not a proponent of the Kondratieff theory because I do not believe that events are preordained, or that they fit precise cycles. Nevertheless, I am an adherent of Austrian Economics, and Malthus recognize that economic booms that are artificially induced by cheap credit Thurs occur, and that these boom bust in result of inevitable. So in that sense, if one wishes to call the world's present circumstances a Kondratieff winter, I would agree.
Like the 1930s, we are in a period of depression, and if you use the correct money to measure prices, there is deflation. Today's deflation is though gene rally not recognized because people only look at prices using national currencies, and not gold.
The dollar price of assets like houses, deflation crude oil and the stock market is falling, but that is not. That is simply to overvalued asset being marked down in price to a more realistic level. Asset prices falling during a bust because the excessive credit extended during the boom is wrung out of the system process Describes This wealth destruction, Which is not the same thing as deflation. Deflation, and for that matter, inflation are monetary events.
House, crude oil and stock prices are falling even while the currency being used to measure these prices is inflating. The dollar is inflating even by the U.S. government's own CPI, Which many - including me - contend actually understates the true rate of inflation. This means that inflation is the dollar losing purchasing power. In contrast, in the 1930s the purchasing power of the dollar rose, Which is what happens in a deflation. Its purchasing power rose back then because the dollar was tied to gold, first at $ 20.67 per ounce, and after Roosevelt devalued the dollar, at $ 35 per ounce.
Today the dollar is fiat currency. It is no longer backed by gold or tied to gold at a fixed rate of exchange, but instead is informally linked to gold by a floating rate of exchange, normally called the gold "price". Even though gold as currency Circulates rarely these days, gold is money. Consequently, gold is useful in economic calculation, ie, measuring prices to Determine whether there is inflation or deflation.
For example, consider the price of a popular commodity examined as tea, Which rose 49.6% from $ 2.28 per kilogram in January 2000, near the peak of the economic boom, to $ 3.41 last month. When measuring in terms of grams gold, the price of tea fell over this period from 0.251gg per kilogram to only 0.066gg. To put it another way, 3.8-times more 0.251gg bought tea last month than it did in 2000. That huge increase in the purchasing power of gold is deflation, just like occurred in the 1930s. A similar price comparison for dozens of other goods and services would yield the same result. The prices of goods and services when measured using gold are falling, or in other words, the purchasing power of gold money is increasing because of deflation.
Unfortunately, nearly everyone today Calculates prices only in terms of dollars or their national currency. As a consequence, they say "the price of gold is rising." What they need to realize though is that the purchasing power of gold is rising. In a deflation, money buys more, and that is what gold is doing, though this way of viewing and purchasing power is generated prices rally ignored. Gold in contrast to the 1930s, in today's world of fiat currencies deflation is only apparent when measuring prices with.
Given the prevailing poor economic conditions and gold deflation, we are in what might be called a Kondratieff winter, but to be more accurate, I prefer to call our present circumstances a "fiat currency bubble". It has been ballooning for 40 years, during Which time people lost sight of gold's essential nature and put undue reliance upon currency backed by nothing.
Given that all bubbles are unsustainable, this bubble will pop too. When it does, the preponderance of people who now ignore gold or dismiss out of hand its monetary attributes will once again come to understand that these attributes and characteristics that made gold to be accepted as money for 5.000 years have not disappeared, been destroyed or become less useful. They remain, but sadly, have been ignored or forgotten, Allowing the Fiat Currency Bubble to emerge.
When the bubble finally pops fiat currency, the gold price will soar and fiat currencies will collapse, just like all fiat currencies throughout monetary history have done. At that time I expect gold will return to its rightful and traditional role as international money at the center of global commerce. Therefore my recommendation is to continue accumulating physical gold, and if so inclined, silver too, in order to protect your wealth in preparation for this watershed event. Even though gold's purchasing power has been rising for more than a decade, its appreciation has much further to go.